Messages from Li Ka-shing

To the extent that tycoon Li Ka-shing is an infallible investment genius, his asset allocation strategy is important. It gives us strong signals about where we should be putting our own nest eggs, and it offers a look at Hong Kong’s future as an economy and society. Of course, his track record suggests he is neither infallible nor a total genius. His entry into telecoms was something of a disaster, and, like many of Asia’s godfathers, he owes much of his success to uneven playing fields rather than innovation. That said, his moves and his timing have been right too often to be luck or coincidence. With his pals in the local property cartel running around after him like little puppy dogs, he is the closest thing we have to Warren Buffett.

So, with a suitable pinch of salt, we look at Bloomberg’s analysis: Li’s actions tell us that Hong Kong’s high-growth days are over, and the place to invest in for the long term is Europe. The first part of that is no surprise. The second part is pretty stunning. It’s audacious, and it makes you sit up. It is the last thing most people would think; that can, at times, be a mark of genius, or at least serious smarts.

Greece is entering its sixth or whatever year of economic contraction. In France, a new-look, user-friendly, warm and cuddly neo-Nazi party is coming top of the polls. Germany is pretending nothing’s wrong while running a Chinese-style trade surplus that’s the mirror image of everyone else’s problems. Unemployment and government debt are leaving many countries in quagmires from which there is no escape. Shiploads of drowning Somalis are turning up on the beaches, gypsies seem to kidnapping every blonde kid around, and the region’s main financial hub is fixated on who’s going to win The Great British Bake-Off. You would be nuts to invest there. Or – this, when the blades of the fan have come to a halt deep within the pile of accumulated solids, is the time to buy. Get rid of those HSBC shares and get into some European ETF. Maybe. We are talking long term, and an 85-year-old like Li might not be around to reap the returns.

Li is in some ways jumping on a bandwagon; Chinese government, state-linked and private players have all been acquiring assets in Europe, from bonds to utilities to vineyards to (oh-so-original) London real estate. If Europe looks attractive in a contrarian, seriously long-term way, it’s because so much else – the US and the Dollar, and the BRIC thing and the commodities thing – looks unappealing.

Which brings us back to the first part of Bloomberg’s analysis and a similar New York Times piece: the Big Lychee’s boom days are finished.

This is stating the obvious. Hong Kong is a mature economy, with much the same per-capita GDP as the US (don’t ask where it goes). The 6% or 8% growth rates of the 1980s are a thing of the past. With fat government reserves and low unemployment, we can be happy with things ticking over as they do.

But we don’t do happy. Hong Kong has to pile on the angst, and see doomsday approaching. This is partly because incessant manifestations of lame governance and strange, unnatural phenomena like influxes of Mainland Yakult fetishists and kindergarten kiddies create an apocalyptic mood. It’s partly because Beijing-led propaganda has since 2003 urged Hong Kong people to believe the city’s only hope of survival is Chinese government generosity, which in turn is dependent on loyalty, and on enjoying being a part of China, and on ‘focusing on the economy’ and on not demanding capable leadership and waving barbarian colonial flags.

Li Ka-shing himself, ever-loyal to Beijing, sometimes adds to these mixed messages, vaguely implying through rare public comments that his investments (in consumer-exploiting cartels) are good for Hong Kong and may be withdrawn (as punishment, we may infer, for ingratitude to our corporate titans, or maybe to the motherland). Thus Li’s own intelligent rotation of assets out of Park N Shop and into European utilities is seen as a cause rather than an effect of Hong Kong’s descent from zippy little Asian Dragon to mature city-state economy. And his recent contrived warning that Shanghai’s Free Trade Zone threatens Hong Kong gets taken seriously.

The whole – apparent – process of China’s opening-up increases the confusion. The Bloomberg guys dutifully conclude their piece with a mention of the ‘Shanghai challenge’ to the Big Lychee. Yet the idea is based on two probably-false premises. One: the Communist Party will sacrifice its grip on power to accommodate economic and especially financial liberalization. Two: Hong Kong would lose instead of gain from such liberalization, were it to take place.

Whatever happened to Shanghai’s FTZ? Remember it? For a week or two it was everywhere – a revolution that would change the world. Now, it seems to have fizzled up. The ‘negative list’ is disappointing if, say, you were hoping to get into the crop seed business up there without some local company leeching off you (what can you do with crop seeds in Pudong, anyway?). Defenders of the FTZ-as-well-intentioned-idea point out that every journey of a thousand miles starts with a single step, and the following steps involve feeling your way over the stones in the river, etc, etc. A limited-circulation report I recently saw says that Chinese companies see the FTZ as a way to give big taxpaying multinationals a break and stop them from relocating; the zone is not intended to offer medium-size companies anything, and the supposed four-day business registration period is just for show.

Hong Kong’s main hope for a miraculous return to 1980s-style strong growth would be genuine market opening in China. In other words, a Shanghai FTZ that genuinely liberalized things like interest rates, capital controls and foreign competition, but multiplied 50 times across the nation as a whole. The logic of the conventional, cringing wisdom spread by Beijing’s fear-spreading cronies is of course the opposite – it would somehow kill Hong Kong. It would be a real revolution, with winners outnumbering losers here, there and everywhere. But it’s not like we’re going to find out.

Meanwhile, it seems Li Ka-shing is having a bit of trouble finding some sucker to buy Park N Shop at his rather ambitious asking price. “Perhaps buyers have grown wise to his tactics, particularly when it looks like he is selling out in the market he knows best.” Ouch. Oh for the days of and the REITs, when they snapped up anything with the LKS logo on it. Yet another reason to look to Europe.



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7 Responses to Messages from Li Ka-shing

  1. Joe Blow says:

    If the ‘Shanghai challenge’ will help to bring down local property rents and if it will help to move a good chunk of those annoying chuppie bankers to China, then I say: bring it on !

  2. maugrim says:

    Hong Kong has become more proserous, the sheer number of people now wiling to engage in social issues such as a clean harbour, air quality, the plight of helpers etc, means that most people don’t live hand to mouth. That said, there is a resource distortion with the allocation of shopping infrastructure towards Mainland tastes. I can’t see wealth flowing to bored shop assistants the same way a job in a factory did to a young woman in the 1960’s. One thing can be said though, with the Government we have, HK is heading towards ‘peak stupid’

  3. oblivia says:

    LKS is a crony capitalist. His profits in HK have nothing to do with investment genius. They come from discounted land, abuse of a dominant market position and the eternal gullibility of widows and taxi drivers (or “investors” as the newspapers like to call them).

    The problem is that he can’t spend all those profits in tiny HK. He and his family earned US$1 billion in dividends last year! Try spending that in HK!! Instead, he buys (mostly) British regulated assets that pay guaranteed income through long-term deals with the government. This is how billionaires put their money away for a rainy day.

    As for selling ParknShop or AS Watsons, I think he sees the writing on the wall. Beijing is cracking down on cronyism; LKS is moving his assets to Europe. Join the dots.

    You might ask why he doesn’t move his money to the US. After all, it’s much easier to spend billions in the world’s biggest and most liquid financial market, but the problem is that disclosure requirements there make it much harder for him to “tax minimise” (very philanthropic, I’m sure you’ll agree). London, on the other hand, is the world’s dodgiest financial centre (Lehman, JPM, UBS, MF Global, Libor, PIP… they ALL happened in London!!).

    You might also ask why LKS doesn’t invest more in Asia. Well, if there’s one thing a crony capitalist knows it’s that you can’t trust your money to a country controlled by a handful of crony capitalists. And that means all of Asia is way too risky for a high-profile outsider.

  4. gweiloeye says:

    LKS is basically a person that knows how to polish a turd just long enough for suckers to fall for it and stick wads of cash in his pocket.

    He “makes” a market out of nothing (e.g Europe), then everyone invests (because he is a genius and we must, like lemmings, throw money at the same thing he is), the price skyrockets over time, hits a peak, then wooshka, he takes the massive profit and runs back home to HK. The remains of the turd struggle and crash, and turn back into it’s bare components (well shit actually) leaving the lemmings wondering what happened. They’ve been LKSed!

    Now that really is genius!

  5. Stephen says:

    Your analysis is superior to Bloomberg and some good comments from oblivia.

    The Li’s have been found out (how it took so long lord only knows) and it was probably silly Billy (Richard) and his Cyberport (Residence Bel Air) that started the rot. Successive Governments have handed him things on a plate – they very nearly gave him half of West Kowloon (and SHK the other half) until old Stanley Ho piped up.

    He can carry on with his utility monopoly, retail duopoly and his leading position in the property / construction cartel but no more goodies, and he knows it. His ego is extremely pissed off that Hong Kong no longer worships him so belatedly he’s become media shy!

    The last hurrah for the Li empire will be when the last container ship switches to Yantian / Shekou and will the Government of that day allow him to build a huge residential project on the site of the former port just like Whampoa Gardens?

  6. PropertyDeveloper says:

    I don’t think too much should be read into the idea of selling Park’n’Weep. LKS has been off the ball for yonks; and in any case big investors have different aims from small ones, as they have lower dealing costs but must act quickly as their moves may themselves affect the market. Having said that, cashing out from over-priced HK may indeed be the way to go.

  7. Matthew 19 says:

    “Again I tell you, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.”

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